Europe

The Group I market remains long, with European producers cutting prices for domestic buyers during March to promote sales. There does not appear to be any tangible response from buyers, who appear to be content to buy Group I base oils on a piecemeal basis, with some still pondering the changeover to Group II for the future.

Group II anticipation is running high with the introduction of the new production from Rotterdam, and also the ingress of lower approved material coming in from the United States. The quantity of U.S. imports is not large, but still is having the effect of creating an awareness of lower prices being available. Group III markets are relatively stable, although with greater quantities of product appearing on the scene, there may be the suggestion of the market heading towards an oversupply situation. That would inevitably affect prices across the board.

Behind the frontline, crude and feedstock levels have remained steady after a short dip at the beginning of last week. Dated deliveries of Brent crude record a value at $65.10 per barrel now in respect of May front month. West Texas Intermediate crude has remained virtually flat around the same level as one week ago, reporting at a price of $56 per barrel for April front month settlement. Forecasts for crude are wide and varied, with some pundits pushing for prices to lift into the summer period, whilst others are somewhat more pessimistic, with some calls for dated deliveries of Brent crude to fall below $55 per barrel.

This week sees International Commodity Exchange LS Gas Oil is slightly firmer at around $616 per metric ton, still for March front month. The above prices were established from late ICE London trading on March 4.

Group I export trade from Europe remains under pressure, even against the backdrop of turnarounds kicking in over the next couple of months. Players say that the temporary drop in production will have little or no effect on an otherwise long market, where suppliers continue to try to place large slugs of API Group I material into markets where intense competition reigns in the form of exports from Russia, the U.S. and Far East.

FOB prices are tweaked a little lower this week for the solvent neutrals in response to some producers introducing further discounts to encourage the movement of large swathes of material. Ranges of light solvent neutrals are now being offered between $560/t-$580/t along with SN500 between $575/t-$610/t. Bright stock FOB prices appear to be hanging on between $785/t-$810/t, perhaps due to some steadier demand for this grade from users in Egypt, Nigeria and the U.A.E.

The above price levels refer to large cargo sized parcels of Group I base oils FOB from mainland European supply points, always subject to availability.

As hinted at last week, European domestic Group I prices have been reviewed for March, reflecting lower levels than February sales. Buyers appear to be in control of this market to the extent that requested discounts and temporary voluntary allowances are almost always granted by sellers. They are keen to maintain sales of Group I grades in the face of Group II and also the widening choices which buyers now have in this market, where they are able to pick and choose supplies from various sellers.

Many of the Group I contracts which traditionally were renegotiated at the end of each year were not renewed for 2019, with a number of blenders opting to purchase on a spot basis, keeping options open to either remain with Group I supplies, or indeed make the quantum leap to Group II. Most blenders contacted the past few weeks confirmed they would not dump Group I base oils entirely, but would retain a proportion of their slate as API Group l. Sometimes this may lead to storage and handling considerations, which must be addressed.

The differential between domestic and export prices remains as assessed last time around, since both sectors moved downwards this week by similar discounts. Domestic levels thus remain between 65 per metric ton-100/t higher than export numbers.

The new Group II base oil production from Rotterdam have still yet to make its entrance to the European market, with parcels of these grades being dispensed to hub storage in the Mediterranean and of course in Rotterdam. It is anticipated that material will start to be delivered to customers later this month, substituting for the same grades that were previously imported from the U.S. and Singapore.

Group II prices were trimmed by sellers during the past couple of weeks, perhaps in response to the new production, but also as a result of European Group II prices pitched higher than other comparable markets, such as the U.S., Middle East and Far East. The price changes are more a case of realignment rather than oversupply or poor demand. Demand for these grades is brisk, and although small quantities of lower priced non-approved grades are finding their way into parts of the European market, the effects of this ingress are said to be minimal.

Prices are lower this week with FCA and truck/barge delivered levels in respect of the light vis grades 100N, 150N and 220N, between $835/t-$865/t (735/t-765/t) and with 500N and 600N between $920/t-$960/t (810/t-847/t). These prices are in respect of the full range of Group II grades, those being non-approved, partly-approved, and fully-approved.

The Group III scene is expanding within Europe and is showing extraordinary growth with the region, able to absorb large increases in the quantities of these grades hitting Europe, both from local indigenous production and imported grades from Far East and Middle East Gulf. The two-tier market continues with fully approved and partly-approved base oils playing their part.

Prices in respect of the partly-approved Group III grades are realigned this week with competition developing where one supplier holding full approvals is discounting to compete with partly approved material. Prices are reported between 775/t-785/t in respect of 4 centiStoke grades, while 6 cSt and 8 cSt base oils are being offered between 785/t-795/t. Prices are based on FCA sales in various locations in northwestern Europe

Fully-approved material is maintained between 845/t-880/t in respect of 4 centiStoke grades, 6 cSt material between 870/t-890/t, and 8 cSt material between 850/t-885/t, basis FCA Antwerp-Rotterdam-Amsterdam.

The prices above do not reflect prices for material which is delivered in bulk cargoes to large or major buyers. Prices in respect of these trades may be lower than FCA levels above.

Baltic and Black Sea

Baltic base oil sales are ticking over, although no dramatic increase in activity other than the two West Africa parcels which were identified last week and the week previously has occurred. These two cargoes alleviated the pressure on storage and throughput and whilst prices in respect of the grades loaded were heavily discounted, the movement of these quantities was heralded by sellers in the region.

With mainland Europe still showing excess stocks of mainstream Group I products, the market is limited for Russian export barrels to penetrate the traditional markets in Antwerp-Rotterdam-Amsterdam. Buyers in the United Kingdom, however, issued a number of inquiries for Baltic supplies to arrive prior to the end of March after when the United Kingdom may possibly have left the EU. Importers in the U.K. are attempting to avoid running into new tariffs and duty in respect of material from the Baltic. There are four inquiries for a total of some 18,000 tons of Russian export barrels in the market, with U.K. resellers trying to juggle storage requirements to accommodate as much material as possible.

FOB prices have dipped again this week as pressure continues on resellers to move barrels which were purchased in February for March arrival into FOB storage. Levels are seen are currently at $500/t-$530/t in respect of quantities of SN150, with SN500 between $510/t-$540/t. Bright stock from the southern Baltic remains in demand and appears to be holding at existing price levels assessed between $785/t-$820/t FOB, depending on quantity, spec and destination.

In the Black Sea region Turkish prices have remained stable over the past few weeks, with local prices fluctuating a little giving opportunities for enterprising Mediterranean sellers to make offers for imported Group I barrels. Prices heard at the end of last week in respect of cargoes offered out of the Mediterranean delivered CIF into Derince or Gebze, Turkey, are around $575/t and $590/t respectively for SN150 and SN600.

An offer has been made to load 5,000 tons of Russian export barrels from the Baltic to discharge into Izmir port, this being an exceptionally unusual cargo movement, since Izmir is the site of the local Turkish refinery producing their own Group I base oils.

Azov-sourced Russian Group I material has returned to the market, with very low offers for these grades to be delivered into Gebze, Turkey. Delivered prices from Azov are assessed at around $555/t-$590/t in respect of SN150 with SN500 between $565/t-$600/t.

The Kavkaz, Russia, STS cargo is still under offer to receivers in United Arab Emirates, with sources indicating a delivered CIF price in respect of SN500 at around $575/t, although rumor has it that this level has been countered by some $25/t. Negotiations are apparently continuing.

Middle East Gulf

Offers of Group II and Group III base oils for the Turkish market were received by potential buyers with U.S.-sourced Group II grades 100N and 500N at exceptionally attractive prices. These deliveries, should they come about, will be made in flexies. Numbers heard during talks last week implied prices around $575/t in respect of both grades. Group III offers are being made from suppliers in the Middle East Gulf with prices which are indicated at around $855/t-$900/t CIF Gebze, Turkey port.

Red Sea news this week confirms that there are production outages at Yanbu refinery which is affecting the base oil plant. From sources In Saudi Arabia there do not appear to be any imminent supply difficulties or problems, although it has been suggested that the supplier will allocate quantities of base stocks to contracted receivers in the first place. The lack of Group II avails may prompt buyers in Gulf Cooperation Council countries in the Middle East Gulf to look for alternative supply options, at least in the short term, such as the U.S. or Far East.

At the same time there is an interesting shipping enquiry for a cargo to move from Jeddah refinery to Derince in Turkey. It is assumed this will be a Group I parcel competing with Mediterranean sources for Turkish import trade.

Group I offers into United Arab Emirates are heard from sources in the Mediterranean, Black Sea and the U.S. Gulf. The arbitrage from each of these sources appears to be open for trade into the Middle East Gulf, and with Iranian Group I material missing from the supply slate at this time, there may be opportunities to move material from Europe. CIF prices in respect of Group I offers are indicated between $565/t-$580/t for heavy neutrals, with offers for Group II grades at between $635/t-$675/t from U.S. sources. Some of these supplies are offered in flexies.

The Iranian situation with reference to base oils remains unclear with some participants in the market suggesting Iran has a free hand to trade under the EU and Indian agreements, and that cargoes of base oil should not be a problem to load out of Iranian ports in the south of the country. Others expressed the opinion that shipping is problematic, with few – if any – owners of vessels willing to enter Iranian waters due to potential fall-out from U.S. authorities. Certainly there have been very few base oil movements out of Iranian ports with some sources based in the U.A.E. commenting that the Iranian market is closed.

Group III exports of Adnoc base oils continue on an FOB sale basis from Al Ruwais in U.A.E., with Neste and Bapco loading their own chartered vessels out of Sitra in Bahrain whilst offering products on a CIF basis to receivers in recognized markets.

FOB prices in respect of Group III grades are put a little lower this week, after some of the discounting being incurred in destination markets. Levels are now established between $725/t-$765/t from Al Ruwais and Sitra in respect of 4 centiStoke, 6 cSt and 8 cSt partly-approved base oils. Eight cSt grades sold into India and Far East locations will extend different FOB prices because of lower local selling prices.

Nexbase-branded base oils distributed by Neste from Sitra refinery, holding European original equipment manufacturer and ACEA (European Automobile Manufacturers Association) approvals, are lowered by some $15/t-$20/t to reflect numbers now between $875/t-$925/t in respect of 4 centiStoke, 6 cSt, and 8 cSt material moving to European, U.S. and other Western markets.

Local Group II avails may come under pressure with the present outage at Yanbu refinery. Group II grades sourced from the Far East and U.S. carrying full OEM approvals are also being sold either delivered in bulk or FCA out of the U.A.E. hub. The new Rotterdam production may be the start to that major establishing a hub base in Middle East Gulf, although if this were a target market then perhaps an operation would have been set up using material produced in Singapore. Sources are being tapped to gain enlightenment on this subject.

Prices for the range of Group II base oils are assessed between $950/t-$985/t in respect of the light grades 100N/150N/220N, with 500N/600N between $1,010/t-$1,025/t.

Prices are in respect of small quantities of less than 25,000 tons per load, delivered around Middle East Gulf. Prices may vary with destination and distance from hub supplies.

Africa

North African trade has seen a couple of Group I cargoes moving into Mohammedia in Morocco and it was also discussed that Group III base oils have been supplied into this market. Other news from this region is the announcement that Egyptian General Petroleum Corp. issued a further tender to cover the contract for the supply of bright stock for the second quarter of this year. The tender covers the usual 3,000 tons of cargo per month, with an extra cargo option for the delivery during May.

No further details were made available regarding the cargo to load for Cote d’Ivoire and Guinea, although the supply to be made into Tema is worked presently. The Group I supply of SN150, SN500 and bright stock will be loaded later this month.

Nigeria reports contain news that further cargoes are sourced from the U.S. Gulf Coast, with parcels considered for loading around second half or late March. These cargoes may contain Group I and Group II grades depending on requirements locally in Lagos. In addition, another Baltic enquiry has been mooted for a two or three port load in regards to an April cargo for Apapa.

Group I grades both out of the Baltic and the U.S. Gulf Coast are heard offered and assessed at $670/t-$680/t in respect of the range of light neutrals, with heavier SN500 landing between $680/t-$690/t. Bright stock loaded from the southern Baltic is estimated to land between $898/t-$925/t with SN900 indicated between $700/t-$720/t CIF/CFR.

Group II prices remain as per the last assessment to land into Apapa at around $795/t-$865/t in respect of both light and heavy vis material in that range.

These prices refer to large cargoes in excess of 10,000 tons total delivered CFR/CIF into Nigerian ports such as Apapa or Port Harcourt.

Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in London, U.K. Contact him directly atpumacrown@email.com.